SEOUL, May 27 (AJP) - South Korea’s business sentiment improved sharply in May as still-strong exports and a record-setting stock market outweighed lingering concerns over oil prices, exchange rates and Middle East tensions, data showed Wednesday.
According to the Bank of Korea, the composite business sentiment index (CBSI) for all industries rose to 98.9 in May from 94.9 in April, marking a 4.0-point increase and the highest level in nearly two years. While the index remained just below the benchmark level of 100, the latest reading suggested that corporate sentiment was approaching its long-term average.
The rebound followed a turbulent spring in which businesses were rattled by the Middle East conflict, surging oil prices, fears over the Strait of Hormuz and a sharp weakening of the Korean won.
In March, corporate sentiment deteriorated as companies grappled with soaring energy costs, logistics disruptions and stagflation concerns tied to the Gulf conflict. April then saw a partial rebound, though much of that improvement stemmed from falling inventories rather than a genuine recovery in demand.
The latest data suggest May marked a shift away from that inventory-driven rebound toward broader-based improvement in actual business conditions.
Manufacturing CBSI rose to 100.8 in May from 99.1 in April, turning positive for the first time this year, while non-manufacturing CBSI jumped to 97.5 from 92.1. Service-sector sentiment also rebounded sharply to 97.3 from 92.9.
Unlike April, when falling inventories accounted for a large share of the improvement in manufacturing sentiment, May’s rebound was driven primarily by business conditions and funding environments.
The BOK said manufacturing sentiment was lifted mainly by business conditions, which contributed 1.4 points, and funding conditions, which added 1.3 points. Product inventories, by contrast, exerted a negative contribution of 1.8 points.
The shift was significant because April’s rebound had relied heavily on inventory effects, raising concerns that headline improvements overstated the actual state of demand.
Underlying manufacturing indicators also strengthened in May. The manufacturing business conditions BSI rose to 80 from 74, while sales climbed to 93 from 87. Production increased to 90 from 88, and new orders rose to 87 from 85.
Profitability and funding conditions also recovered after weakening sharply in April. Manufacturers’ profitability BSI rose to 74 from 68, while funding conditions improved to 79 from 76.
Cost pressures, while still elevated, showed tentative signs of easing. Manufacturers’ raw material purchase price BSI fell to 143 from 149 the previous month, while the product selling price BSI rose further to 112 from 110, suggesting some firms were beginning to pass higher costs on to customers after months of margin compression.
The rebound was even more pronounced in the non-manufacturing sector.
The non-manufacturing CBSI rose 5.4 points, driven by gains in profitability, sales and business conditions. Transportation and storage firms posted especially strong improvements, with their business conditions BSI jumping to 84 from 67, while accommodation businesses rose to 85 from 72.
Exporters continued to outperform domestic-oriented firms, though the gap narrowed somewhat as domestic businesses also improved.
Exporters’ CBSI rose to 105.3 from 103.4, while domestic-oriented firms climbed to 98.4 from 96.4. Large firms improved to 103.4, but small and medium-sized enterprises edged down slightly to 96.2, underscoring that the recovery remained uneven across company sizes.
The latest survey also indicated that some of the acute fears surrounding exchange rates and geopolitical uncertainty seen earlier this spring had begun to ease.
Lee Heung-hoo, head of the BOK’s economic sentiment survey team, said the improvement was driven by robust IT exports in manufacturing and improving conditions in wholesale and warehousing-related businesses despite the prolonged Iran conflict.
“Media reports earlier this month regarding possible negotiations involving Iran appeared to raise expectations for a de-escalation of the conflict,” Lee said. “That likely affected responses related to exchange rates and rising raw material prices.”
Among manufacturers, the share of firms citing exchange rates as their biggest management difficulty fell to 5.0 percent in May from 6.5 percent in April, while the share citing uncertain economic conditions dropped to 17.7 percent from 19.3 percent. The proportion citing rising raw material prices also eased slightly to 32.8 percent from 34.2 percent.
Instead, concerns over weak domestic demand became more prominent. The share of manufacturers citing sluggish domestic demand rose to 15.5 percent from 13.8 percent, while among non-manufacturers the corresponding figure increased to 17.0 percent from 16.7 percent.
The data suggest businesses are gradually shifting their focus away from external shocks such as oil prices and exchange rates toward more structural concerns surrounding domestic consumption and demand recovery.
The economic sentiment index (ESI), which combines corporate and consumer sentiment, rose sharply to 97.5 in May from 91.7 in April. However, its cyclical component remained unchanged at 95.2, indicating that the broader economic recovery has yet to establish a sustained upward trend.
Companies also became more optimistic about the near-term outlook. The June all-industry CBSI outlook rose to 97.6 from 93.9, while manufacturing and non-manufacturing outlooks climbed to 100.3 and 95.9, respectively.
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